It is possible for those wishing to extend their leases but have not owned the property for two years, to enter an informal arrangement with the freehold landlord. This option does however come with its own pitfalls as the following extracts, sourced from the article entitled 'The Dangers Of Lease Extensions Outside The Act' by Jo Rengger, Russell-Cooke LLP  for News On The Block March 2010 demonstrates:



1) Timescales

Timescales may slip and parties cannot drive matters forward in extensions outside the Act. Landlords can withdraw at any time leaving leaseholders with no other option than to re-commence using the Act (if they qualify for the right).

2) Mortgage

Whilst the Act provides for the treatment of mortgages, meaning that mortgagee's consent can be avoided this is not possible in voluntary extensions and time, money and goodwill may be lost obtaining mortgagees' consent.

3) Valuation Date

Significant valuation issues arise if a lease's remaining term drops below 80 years. A statutory notice fixes the valuation date at the date the notice was served. If there is no notice there is no 'fixing' and the landlord might demand a higher premium if the lease drops under 80 years during voluntary negotiations.

4) Terms

Lease terms can be negotiated freely between the parties. This may take time and can lead to extensions being abandoned. When a statutory notice is served the terms are restricted by the Act making negotiations quicker and simpler. For example, leaseholders can insist ground rents are reduced to a peppercorn and landlords can insist on redevelopment rights.

5) Costs

Lengthy and complicated negotiations can lead to increased legal costs. If a leaseholder has to start again with a statutory notice, legal costs for work completed in the failed voluntary process must be paid as well as the fees for an extension using the Act. Landlords can be left with unrecoverable legal bills if their solicitor has not obtained undertakings from leaseholders' solicitors to pay costs.

The cost of the premium may also be increased if the leaseholder is tempted to forego independent valuation advice. A future lease extension or freehold purchase will be more expensive if ground rents have been maintained or increased.

Leaseholders who pay a variable service charge have the right to ask for a full management audit of the landlord under s76 of the Leasehold Reform Housing and Urban Development Act 1993. Not lessl than two thirds of the leaseholders can serve a notice on the landlord who must co-operate with the qualified accountant/surveyor chosen by the leaseholders. However, the cost of the audit is met by the leaseholders who serve the notice, not the landlord and therefore such costs cannot be recovered.

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